2005 (8) TMI 19 - AT - Central Excise

Central Excise Cenvat credit Input used in the manufacture of goods dutiable as well as exempted goods cleared at nil rate of duty and reversal of credit based on pro rata (2) 8% amount not reversed (3) Valuation (4) Related person (5) Penalty

Summary

Issues:
1. Availing credit of duty paid on inputs for manufacturing paper and paper board.
2. Reversal of credit availed on 'Nil' rate paper due to lack of separate accounts.
3. Demand for recovery of differential amount on 'pulp' cleared at Nil rate of duty.
4. Interpretation of rules regarding reversal of credit on common inputs.
5. Application of 8% reversal on exempted goods.
6. Related person concept and valuation rules applicability.
7. Imposition of penalty under Section 11AC.

Analysis:
1. The appellant, engaged in manufacturing paper and paper board, availed credit of duty paid on inputs used in the manufacturing process. The issues arose when the appellant failed to maintain separate accounts for unconventional raw materials like 'Nil' rate paper, resulting in demands for reversal of credit and recovery of differential amounts.

2. In Appeal No. 1818/04, the Tribunal analyzed the situation where the appellant was reversing credit on certain inputs on a pro-rata basis, rendering the import credit on these items as not availed for 'Nil' rate paper. The Tribunal referred to legal precedents such as Chandrapur Magnet Wires case and held that no credit was availed on such inputs due to the reversal, thus rejecting the demand for 8% reversal along with interest and penalty.

3. Appeal No. 1804/04 dealt with a similar issue of demand for recovery of 8% amount on 'pulp' cleared at Nil rate of duty due to the lack of separate accounts for certain inputs. The Tribunal considered the technical feasibility of maintaining separate accounts due to supply through pipelines and ruled that the reversal of credits on a pro-rata basis was sufficient, rejecting the demand for 8% reversal based on legal precedents and valuation rules.

4. The Tribunal emphasized the importance of following legal principles established in previous cases like Roches Watches Ltd. and Mayur Colours Ltd. regarding the interpretation of rules for credit reversal on common inputs. The judgments highlighted that the reversal of credit on inputs would result in no credit taken on such inputs, thereby affecting the applicability of 8% reversal requirements.

5. Regarding the related person concept and valuation rules application, the Tribunal found that the establishment of a related person connection was not proven, leading to the rejection of the valuation based on Rule 9 and Rule 8 of Valuation Rules. The Tribunal also noted the absence of willful suppression, leading to the setting aside of the penalty imposed under Section 11AC.

6. Ultimately, the Tribunal set aside the orders impugned, allowing the appeals in both cases and emphasizing the importance of following legal precedents and principles in matters related to credit availing, reversal, and demand for recovery, while also considering technical feasibility and related person connections in valuation assessments.